Good morning,

The Bank of Canada’s decision to hold its benchmark interest rate Wednesday was no surprise, but as one economist pointed out the conversation had already moved on.

The central bank ticked several boxes in its statement. Higher interest rates are “clearly restraining spending,” the economy is no longer in “excess demand,” and the slowdown is reducing inflationary pressures.

But it also said inflation risks remain and it was prepared to hike again if needed.

Despite this, many economists believe the hiking cycle that started almost two years and 475 basis points ago has come to an end. The debate has now switched from whether the Bank will hike rates to when it will start cutting.

“It’s safe to say that the countdown clock to rate cuts has begun, even if the Bank isn’t saying so,” said Bank of Montreal chief economist Douglas Porter in a note after the decision.

Markets are betting the Bank will start cutting its rate as early as the April meeting, and some economists agree.

“With inflation still above 3 per cent, we get why the BoC isn’t ready to declare victory,” said James Orlando, senior economist at TD Economics in a note.

But he expects the next few months will be challenging for the Canadian economy. A rising unemployment rate will further slow consumer spending and bring inflation down with it.

“The next move is clearly a cut, with odds pointing to the first move in April. We agree,” he said.

Randall Bartlett, Desjardins’ senior director of Canadian economics, says the Bank will likely need to see the unemployment rate at 6.5 per cent and inflation at or below 3 per cent to begin cutting.

“This is anticipated to happen by the second quarter of 2024, with cuts expected starting at the April 2024 meeting,” he wrote in a note.

For Stephen Brown, North America deputy-chief at Capital Economics, the first cut could come as early as March and the reductions over 2024 will be deeper than most expect.

Markets forecast about 100 bps reduction over the year, but Capital expects 200 bps of cuts, bringing the central bank’s rate to three per cent by the end of 2024.

“Against the backdrop of the weakening economy and falling inflation, the Bank will need to start cutting the policy rate soon to prevent the real stance of policy becoming more restrictive,” he wrote.

Economists at CIBC think the Bank will begin easing a bit later in June, but they also expect a deeper cut for the year than markets. CIBC predicts the overnight rate will be at 3.5 per cent by the end of 2024, 150 basis points lower than today.

BMO’s Porter says given the Bank’s goal to restore its credibility in the inflation fight, it may wait as long as possible before shifting to a dovish stance.

“We suspect that while the underlying trend in inflation will improve in 2024, there will be bumps along the way, keeping the Bank on hold a bit longer than the market currently anticipates,” he said.

In the meantime, economists will be looking for more clarity from a speech by Bank of Canada deputy governor Toni Gravelle today and signals from the monetary policy report to be released at the Bank’s next decision on Jan. 24.

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Canada’s trade surplus grew in October to $3 billion, the third monthly surplus in a row.

Exports rose slightly but imports took a dive as the United Auto Workers strike crimped supply of autos and autos parts from the United States. Imports of metals and minerals plunged 14.7 per cent.

The biggest gains in exports were in aircraft and other transportation equipment, up 15 per cent.

BMO economist Shelly Kaushik said despite the surplus, the details were soft.

“For now, it looks like trade could add to growth in the fourth quarter, though we believe that the broader economy is poised to continue struggling through year end,” she said.

• A day after the Bank of Canada held its benchmark interest rate, deputy governor Toni Gravelle speaks in Windsor on the economic progress report. Market observers will be looking for more insight on the Bank’s decision when Gravelle answers questions after the speech.
• Today’s Data: Canada building permits for October
  
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• Get all of today’s top breaking stories as they happen with the Financial Post’s live news blog, highlighting the business headlines you need to know at a glance.

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There are always short-term market winners and losers, but some companies have had a tough decade. Veteran investor Peter Hodson looks at five Canadian stocks that have had a terrible time, but are still around and have market caps north of $100 million. The purpose: To learn from what went wrong.

Today’s Posthaste was written by Pamela Heaven, @pamheaven, with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.

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